Food Porn

Rosie the organic range chicken enjoyed the good life before ending up beheaded, plucked, swathed in plastic and artfully arranged on a bed of ice at the Whole Foods Market in Glendale, Calif. Rosie spent life in a custom ranch house in California's wine country and exercised in an airy, sunlit building on an earthen floor covered with clean hulls of rice. She nibbled on golden corn and flew the coop in an outdoor yard. And unlike poultry sold at most grocery stores, this bird never used antibiotics or growth hormones.

That, at least, is the reassuring tale told in the brochure (printed on recycled paper, of course)available for discerning shoppers at the track-lit, pristine poultry cooler in Whole Foods stores. The real point: Rosie is priced at a princely $3.29 a pound, more than twice the cost of your regular bird.

Just about every food has a story behind it at this small but remarkably profitable chain, known for luminous, loving displays of succulent and savory foodstuffs and prices so obscenely high they prompt gasps of disbelief. Every Whole Foods store is a bountiful temple of wholesome eco-righteousness, a refuge from fears (valid or not) of synthetic pesticides, growth hormones and genetically modified Frankenfoods.

At Whole Foods a noodle isn't just wheat and water in a plain package--it is the life's work of an Italian "authentic food artisan" named Gino Girolomoni. In 1973 he bought an abandoned monastery on 480 acres of untouched mountaintop land overlooking the Adriatic Sea and planted a crop of organic durum wheat. His Montebello brand pasta goes for $2.49 for a 16-ounce package, 70%more than the regular stuff fetches at an unadorned grocer. It is dotingly displayed, like everything else, under dramatic lighting that illuminates heirloom tomatoes as if they were heirloom diamonds.

Such food-as-porn marketing has helped to make Whole Foods a potent, high-profit force in one of the toughest businesses in the world:grocery stores. The nation's largest retailer of natural and organic foods, Whole Foods got its start in 1978 when John Mackey, then 25 years old, a fresh dropout from a succession of three Texas colleges, borrowed $45,000 from friends and family to open a health-food store-cum-restaurant in Austin, Tex.

Since then Whole Foods, fed by teeming growth and 16 acquisitions in 24 years, has expanded to $4 billion in annual revenue and 166 stores (157 in the U.S., 7 in Britain and 2 in Canada). It went public in 1992 at a split-adjusted $8.50 a share; these days its stock is near a high of $100, up more than fivefold in five years.

"Everything we envisioned has come true," Mackey says. He cultivates a laid-back style--in 2003 he took off five months to hike the entire 2,174-mile-long Appalachian Trail--but is so rapaciously competitive that he hates to lose even a friendly game of horseshoes. "We're just basically outcompeting everyone," he declares.

Now Mackey, 51 and still Whole Foods' chief executive, vows to more than double sales to $10 billion in five years. He hopes to pose a direct challenge to supermarkets by persuading customers to do all their shopping at Whole Foods instead of cherry-picking the goodies they can't buy at the big-name chains. This year he will spend upwards of a quarter-billion dollars adding 15 to 20 new stores at an average of 47,000 square feet per store--double the size ten years ago. Plans include an 80,000-square-foot store in Austin and a 66,000-square-foot outlet in New York's East Village, replete with day spa, book nook and cooking school.

"On the one hand that sounds ambitious, but on the other that's not rapid growth," says Mackey. "When we went public in 1992, we did $92 million in sales. Thirteen years later sales are 40 times greater. Now we're talking about increasing sales two and a half times in five years. It's not that big a deal."

But Mackey & Co. will have to push this next phase of growth without the boost of acquisitions now that he already has bought up the best prospects. And he must do so at a time when far bigger chains endure shrinking profits or outright losses in a particularly unforgiving business.

In 2004 Whole Foods' net income rose 32% to $137 million. Profits are expected to fall 31% at Safeway and 6% at Albertsons for 2004, and three other giants (A&P, Pathmark and Winn-Dixie) likely piled up a total of $195 million in losses. That depressing performance would have been even worse without "vendor allowances" and "slotting fees," cash paid to grocery stores by big food companies seeking prominent placement of their products. Such payments hit $100 billion in 2003.

Yet Whole Foods, obsessed with presentation on its own terms, refuses to take slotting fees and accepted only $1 million in other inducements last year. And though it ranks a lowly 21st among food chains in sales, Whole Foods runs number four in profits among the publicly held grocery chains and is also fourth in total stock market value, now at $6 billion. Safeway and Albertsons have annual sales ten times as large but are valued at only $8 billion apiece. The struggling Winn-Dixie Stores, with six times as many stores and three times as much in sales, is valued at just 10% of Whole Foods' market value.

Americans spend $430 billion a year on food sold at 34,000 supermarkets. But the real cost of food is only one-third of what it was in 1950: We now spend only 6% of our total income buying groceries, down from 17% half a century ago. At retail the industry makes less than a penny of profit on every dollar spent.

Yet Whole Foods runs triple that profit margin, and its stores typically bring in $800 per square foot in a year, double the industry average. The difference lies in organic foods, which can carry a price premium of 40% to 175% over regular goods. (Never mind, for now, the pitched debate over whether organic foods are any safer or more healthful than the cheaper, additive-laden fare most of us eat; see box, p. 106.) Mackey further entices the Volvo and Range Rover set by promoting do-gooder causes, from more humane treatment of farm animals and "bird-friendly" coffee to "sustainable" seafood, meaning Whole Foods won't sell species that are overfished.

Whole Foods thrives by presenting food as theater, playing up the pious organic angle even as it peddles tempting offerings of culinary excess. Mackey succeeds precisely because he does not live by organic seven-grain sprouted-wheat bread alone. Whole Foods is, in truth, a glutton's paradise stocked with 350 varieties of chichi cheese (including, at $19.99 a pound, Humboldt Fog), $390 bottles of Chateau Latour wine and pallets of mousse cakes, banana cream tarts and other belly-bursting goodies. The stores also stock abundant slabs of red meat--never mind that Mackey is an avowed vegetarian. "Our company deals in dead animals,"he says unapologetically.

Some two-thirds of Whole Foods' sales comes from perishables and prepared meals for the growing masses of people too busy to cook; at old-guard chains that figure is below 50%. On-site preparation lets Whole Foods tack on a rich premium. At the outlet in Santa Monica, Calif. 85% of the prepared food is cooked on site by a small team led by a former chef for a Four Seasons hotel. Chicken that goes for $2 or $3 a pound suddenly rises to $10.29 when it's grilled with rosemary.

At New York's posh Time Warner Center the new Whole Foods is a 59,000-square-foot temple to culinary obsession. The prepped-foods section is laid out like a pungent open-air bazaar. Along the walls are: a full sushi bar; an open brick oven where chefs make fresh pizza at $7 a pound; a "comfort food station" that serves beef stew and tuna noodle casserole; a pasta area offering mushroom goat cheese lasagna and eggplant rollatini; and a deli that sells 850 sandwiches a day. Every week the Indian foods hot bar sells two tons of vegetable korma,aloo mattar and the like at $7 a pound. Elsewhere, a coffee area features Whole Foods' own brand, Allegro, which is roasted out in the open for the aroma. "It's theater," says Christina Minardi, a Whole Foods regional vice president who oversees the New York stores.

It's also great business. Retail rents in the Time Warner Center reportedly go as high as $450 per square foot, or $27 million a year if applied to Whole Foods' space. Although the company pays higher rent for the store than any other in the chain, a Whole Foods spokeswoman says, "in general, anchor tenant rent is significantly less than small shop space." The company won't disclose the specific rent, or the store's total sales, but says sales more than cover expenses, even without jacking up prices beyond those charged outside of the city.

Whole Foods stacks its offerings, organic and otherwise, as high as gravity and physics will allow, suggesting an abundance so rich that a farmer's market must have just parked at the store for the day. At the Time Warner Center store multihued layers of produce are symmetrically stacked up to 4 feet high, broken up by unusual selections such as fluffy "hen of the woods" mushrooms. The aisles are 6 feet wide--a rarity among New York's crowded crevices--and the shelves are low, the better to tempt shoppers with the bountiful vista of aromatic foods. "It's a very visual style," says Walter Robb, co-president, who runs the western half of the U.S. "More than half of shopping decisions are made on impulse. When you shop, we engage your senses. We want to romance the food." The store's manager, John Marsh, puts it more succinctly:"It's the Wow!' factor."

Indeed it is. "Wow," a delighted woman squealed as she entered the new Whole Foods in Sarasota, Fla. recently on opening day. Her friend chimed in:"We may have found the answer to our prayers." Bacon and sausage sizzled away on a grill near the butcher counter, tended by Louis Colameco, founder of the Wellshire Farms meat company. He proudly handed out samples of his meaty fare. "I don't sell to Albertsons. They don't have the mission Whole Foods has," he says. Over at the cheese counter an air shipment of French aged goat cheese had arrived the night before, yours for $25 a pound. And no foodie's cupboard should lack a $27 bottle of Villa Manodori balsamic vinegar.

John Mackey sensed the upside in organic foods 27 years ago when he opened his first store, the aptly named Safer Way Natural Foods, in Austin. Back then a barely detectable trickle of consumer concern had begun regarding chemicals, hormones and artificial ingredients in the food supply; soon the fretfulness would fuel a thriving business. Inspired by the idea of a big natural foods supermarket that could provide one-stop shopping to the Birkenstock crowd, Mackey hooked up with two partners in 1980 to open the first 10,000-square-foot Whole Foods Market, also in Austin.

By the early 1990s Mackey had started an acquisition binge. With $4.5 million in venture capital and another $23 million from a 1992 IPO, Mackey made one of his most important buys: Bread & Circus, an upscale chain in New England with $65 million in sales at the time. That deal introduced Mackey to a major new profit center: gourmet foods freshly prepared by an on-site staff of chefs.

"He was--inspired," says Bread &Circus alum Anthony (A.C.) Gallo, studiously avoiding the word "rip-off." He recently was named Whole Foods' co-president, in charge of the eastern half of the U.S. Wary at first, Gallo stayed on after the sale once he realized "they weren't out to destroy the Bread &Circus culture of quality food. In fact, they wanted to learn from it."

These days Whole Foods caters to widely varying local tastes, letting up to a dozen teams at each store, segmented by food discipline, make many decisions. Store managers set prices on locally competitive items and have the discretion to stock 10% of each store with whatever items strike their fancy.

"We allow innovation and experimentation to occur at the store level," says Mackey. "It bubbles up from the leadership at each store." "You ask forgiveness rather than permission," adds Michael Besancon, who runs the southern California region.

For the New York stores a buyer arrives at the city's famous Fulton Fish Market every morning at 2 a.m. to purchase the fresh catch of the day, which is then highlighted at the counter. In Santa Monica store manager William Lombardi learned that disciples of a local Buddhist sect eschew any food containing onion and garlic. So he now posts "No Garlic, No Onion" signs on 15 prepared dishes (most of which didn't contain them to begin with). At the 46,500-square-foot outpost in Glendale, Calif. Iranians can get their pilaf by the pound; Latinos can choose among various tamale fixings; Asians can acquire gai choy and chicken feet; and whole fish are set outside the refrigerator case in ice so the Armenians can press the eyeballs for freshness (too mushy and the fish is deemed dated). "I'm empowered to run this like it's my own store," says David Aebersold, the store's manager.

Whole Foods sees plenty of untapped growth ahead. It expects same-store sales to rise 8% to 10% this year--this in a business with flat to declining growth (Wal-Mart excepted). Customers come from a 20-mile radius to shop at Whole Foods, compared with just 2 miles for the typical supermarket. And only 25% of Whole Foods shoppers provide 75% of total sales.

"The point is we can grow share-of-wallet as well as the number of stores," says co-president Robb. "Our goal now is to be the best food retailer in every market. Everybody that sells food is a competitor."

Whole Foods' successful taking of Manhattan represents "our coming of age," Robb says. The chain first opened in the Chelsea neighborhood in 2001, and many had warned that Whole Foods would face a rough welcome from hypercritical Manhattan foodies, bare-knuckled union goons and gourmet stalwarts such as Zabar's and Dean &Deluca. "We were warned that we would have labor problems, that New York is totally different, that New York customers are used to rude employees,"chairman Mackey says wearily. "It's been just the opposite."

Aware of New Yorkers' impatience with waiting in line, the Chelsea store installed a bank of 20 cash registers, since increased to 26, with a "line director" who acts as a traffic cop; his role merited praising profiles in both the New York Times and the New Yorker. The newer and bigger store at the Time Warner Center has two line directors and 32 registers, still not enough to placate one cranky shopper from venting to the store manager on a recent Tuesday. Coming in March is a 53,000-square-foot Whole Foods on Union Square, with a second-floor eating area overlooking the park, followed by a new store in Tribeca, another in Park Slope, Brooklyn and a third outlet on Long Island.

Beneath this booming business, however, Whole Foods still hews to its hippie, health-food roots. Robb notes that his co-president counterpart, Anthony Gallo, is a detail-oriented "triple Virgo," while Robb himself is a Scorpio--"I'm intense and passionate." Mackey likewise espouses the notion that we're all in this together. "Business is simple,"he says. "Management's job is to take care of employees. The employees' job is to take care of the customers. Happy customers take care of the shareholders. It's a virtuous circle."